Who does workers’ compensation really protect?

This question gets asked a lot at public meetings, hearings and classes I attend or facilitate.  I can summarize one perspective with the following: 

 “Workers’ compensation is more about protecting employers than workers… It should be called the ‘Employer Protection Act’… It protects employers from being sued.  It protects them from the real costs of injuries.  It protects employers from having to look the families of the workers they have injured or killed in their eyes and be accountable for what happened.” 

This rather harsh assessment is not without its justifications.  The exclusive remedy workers’ compensation provides does protect employers from being sued by their workers for work-related injuries and diseases; however, it also protects workers from being sued by other workers.  There are some exceptions in some jurisdictions but this protection is an essential element of almost every workers’ compensation system.  More importantly, the no-fault, mostly universal coverage offered by workers’ compensation systems provide timely financial compensation and medical coverage in a way that fault-based systems reliant on the Courts simply cannot.  

Yes, the insurance does protect employers from the real costs of injuries but only to the extent that the cost of injuries exceed the cost of the insurance.  That’s the nature and purpose of insurance:  to protect against rare and costly adverse events.  It is also true that most of employers insured under a workers’ compensation policy in any given year will actually pay more for the insurance than the costs of their actual losses.  Some people are surprised by this statement, but only until they think about other lines of insurance.  The cost of my house insurance protects me from the real cost of a house fire but only if I have one.  Thankfully, my house is still standing and the cost of my house insurance far exceeds the losses I have had or will likely every have in a given year. 

Just because workers’ compensation in a no-fault system and protects an employer from suit does not mean the employer is not held accountable.  Firms with poor claim cost records relative to their industry counterparts will likely face financial consequences through experience rating (also called experience modification, demerits, and surcharges in other jurisdictions).  Put another way, firms who invest in safety and develop a strong safety culture are likely to have fewer injuries with less severity giving them a competitive advantage.    In addition to financial accountability through higher premiums that may hurt competitiveness of poor performing firms, more severe penalties add another layer of accountability in many jurisdictions. 

WorkSafeBC recently issued its annual listing of “administrative penalties” against employers for violations of the Occupational Health and Safety Regulation that put workers at risk whether or not such violations actually resulted in real injury.  This form of accountability goes beyond the financial accountability equal to the dollar value of the penalty, it can also holds the employer accountable in the court of public opinion.  One has only to look at the media coverage related to penalties assessed by WorkSafeBC. 

Who does workers’ compensation really protect? The obvious answer is the worker.  As an insurance nominally paid for by the employer where the beneficiary of compensation is the injured worker, workers’ compensation protects workers and their families from the full financial loss that might otherwise occur as a result of work-related injury.  That protection amounts to billions of dollars every year paid out to injured workers and their families in Canada, the US, Australia and other countries with workers’ compensation systems. 

Often overlooked are the protections extended by workers’ compensation legislation to non-workers.  Spouses and dependents are often beneficiaries of workers’ compensation in the event of a work-related fatality.  Beyond that, the healthcare paid on behalf of the injured worker protect society (taxpayers like you and me) from medical and other healthcare costs that might otherwise be externalized to government programs.

Workers’ compensation systems also impose a duty on the insured employer to prevent injuries.  That duty, when embraced fully, becomes cultural but the duty to protect workers extends protection to every other person in the workplace. 

The prevention imperative of workers’ compensation to directly protect workers also protects kids in schools, customers in malls, and non-worker participants at or near the worksite.  In a sense, workers’ compensation protects all of us in one way or another making it an important element of social policy.

What is the purpose of a waiting period in Workers’ Compensation?

Waiting periods are a very common feature in US workers’ compensation systems but are relatively rare in the Canadian context and absent from Australian systems.   A waiting period in workers’ compensation is a form of worker deductible.  Most commonly, waiting periods start on the first day for which wages are lost and last anywhere from one day to one week with three and seven day waiting periods being very common.

Many systems allow for medical-only claims during the waiting period and most have no prohibition against the employer paying some benefits during this time.  In fact, collective agreements may contain provisions that require wage continuation during a workers’ compensation waiting period.  In such cases, there is no administrative or indemnity saving by introducing a waiting period.  All that changes is the pocket from which the benefit is paid.

Most systems with a waiting period have a retroactive point.  If the worker is off work beyond this point (ranging from one to four weeks but most commonly two weeks), the waiting period is waived and the worker receives wage-loss indemnity payments for the waiting period as part of the workers’ compensation claim.  Eliminating a waiting period impacts only the cases with durations less than the waiting period.

When workers’ compensation systems started, the waiting period was seen as a way to constrain insurance costs.  As may be deduced from the structure of the waiting-period deductible and the retroactive provision, the waiting period is targeted at less severe (in terms of duration) claims. Let me be clear, waiting periods limit cost to the insurer (and, through insurance rate-setting and experience-rating provisions, to the employer).  The human and financial cost of the injury for the waiting period is borne by the worker and his family unless this burden is offset by collective agreement provisions or employer practice of wage continuation (or access to sick leave or other paid leave provisions) provided by the employer. 

When workers’ compensation got started in BC in 1917, the waiting period was three days.   In 1972, the waiting period was eliminated.   This was part of a trend in Canada, however, there has been a recent trend to consider and implement waiting periods.  Prince Edward Island and Nova Scotia each have a “2/5^ths” of a week waiting period [which works well for 4 day weeks and other non-five days a week schedules] and New Brunswick has a 3 day waiting period. 

From a pure insurance point of view, the best injury claim is the one never filed.  Introducing waiting periods conceptually reduce administrative costs [assuming healthcare costs are paid by someone else] and indemnity costs but they may well discourage many claims of longer duration from ever being filed.  If sick leave or other leave provisions are in place, a worker may well elect to forgo a possible workers’ compensation claim with all the burden of filing and often with an implied or perceived onus of proving work-relatedness in favour of a simple sick leave application within the firm.  Firms may well tacitly approve this practice as it may (or may be perceived to) positively impact workers’ compensation premium rates through experience rating. 

For workplaces with no alternatives, a waiting period externalizes a cost of production [work-related injuries and illnesses] to workers.  If this forces the worker or a family to access other aspects of the social safety net [social welfare services] or community food banks, then the mere existence of a waiting period externalized costs beyond the workplace.  Put another way, those externalized costs amount to a subsidy (paid by workers’ families, taxpayers or the community) to businesses where injuries occur. 

Yes, the firm will have to hire a replacement worker for a few days or bear the costs of lost productivity, but that is the case regardless of the legislative existence of a waiting period.  Contrast a firm in a jurisdiction with a waiting period to one where work-related claims are payable from the day following the day of injury and the collective value of waiting periods is obvious. 

Some may argue that the financial subsidy or externalization of costs at the aggregate level is not large.  If this is the case, then reverse is also true: the cost of eliminating waiting periods where they exist will not be large either. If, however, the value of a waiting period is argued to be significant, then its cost or subsidy value should be part of the policy discussion. 

Every jurisdiction has to make its own decision regarding waiting periods in workers’ compensation.  That’s a matter for legislators and their electorates.  There may be good and valid reasons for waiting periods that outweigh the costs or justify the subsidy in a particular jurisdiction.  I am not saying the public policy choice to have or introduce a waiting period is always a bad one.  I am suggesting that the policy debate include a full discussion of the externalized costs and subsidy values involved. 

What does a rising trend in injury costs mean?

The costs of work-related injuries are felt by individuals, families and communities.  The personal and human costs are immense but difficult to quantify.  Injury costs associated with workers’ compensation claims, however, are financial and easily quantifiable. 

Changes in injury claim costs get the attention of employers and workers’ compensation administrators.  The obvious concern is that rising claims costs might be an indicator that claims managers are “giving away the farm”, not managing the claims very well.  I have rarely found this to be the root cause of such a trend.

Rising injury claim costs can be related to external factors.  Healthcare cost inflation is outstripping overall inflation, for example; even if all else remains the same, this factor alone may account for increased claims costs.  The external employment environment may also be a factor.  We know from research that claim duration increases as the employment moves from high demand to steady and from steady to declining demand (given relatively constant labour force supply). 

Occasionally injury claim costs rise because of closer adjudicative scrutiny.  I recall one claims director promoting very early intervention and a medical report every two weeks before a payment could be issued.  The result was increased medical tests and physician visits, which added significantly to costs and did not result in shorter duration. 

I was consulting with one large employer who was considering terminating his third party administrator (TPA) because indemnity and medical costs per claim were on the rise.  As we discussed the situation, it became clear that demographics not claim management practices were the main driver.  As this very large firm had automated and improved efficiency, it had hired fewer workers.  Mandatory retirement had also been eliminated so more workers were working longer (automation actually facilitated a longer work career).  Taken together, the result was an aging workforce and one with a greater level of co-morbidity (diabetes, high blood pressure, obesity).  While injury rates were lower, duration and medical costs were higher every year.  Clearly, these issues—not the TPA’s claims management practices—were driving claim costs upward. 

Recently, I was corresponding with a coordinator for a booming resource extraction firm where recruitment and retention were big issues.  The employer made a point of meeting with all the crews, raising awareness about workers’ comp and disability benefits as well as their extensive EFAP program and easy, on-line extended benefit program.  The result was increased utilization in WC, EFAP, LTD and extended health driving premiums higher.  This was both expected and welcomed because it contributed to a more important corporate objective:  increased employee retention and lower turnover.  The higher premium costs were much less than the cost of recruiting and training of new employees. 

Of course, a trend toward higher injury claim costs may also be related to internal factors.  Increasing caseloads, for example, may be caused by staffing reductions or increased claim volume with insufficient increases in staffing; either way, the result may be less attention per claim and rising injury claim costs.  Other internal changes to systems, policies and procedures may also contribute to higher costs.  One insurer back-filled a significant number of case manager positions with less experienced staff so the more senior staff could be assigned to a particular crisis situation.  At the best of times, the handover of a particular caseload from one case manager to another may contribute to longer claim duration and increased utilization as the new case manager becomes accustomed to the caseload.   When amplified by the simultaneous transfer of many caseloads, the impact on performance measures such as claim cost can be significant.

Whether you are looking at the performance of an overall system or a specific firm, rising injury claim costs cannot be viewed in isolation.  Its meaning must be interpreted within a broader context. 

What “best practices” would you recommend to Case Managers?

Interacting with case managers at conferences and workshops, I learn a lot about case management practices that work… and some that don’t.  I hesitate to call the ones that work “best practices”.  The term is over-used and implies an evaluative process that is usually absent.  More often than not, the identified “best practice” is nothing more than an opinion (perhaps informed, occasionally expert but usually otherwise).

The other problem with “best practices” is the implied universality of the term.  Rarely does a discussion of best practices in case management precisely define the domain to which the identified practices apply. Not all case managers have equivalent duties or work within similar organizational structures; not all legislative frameworks allow for information exchanges that might be considered valuable or desirable.   A particular set of best practices may well exist for a narrowly defined role and organization.  In the absence of that definition, any list of best practices devolves into a set of self-evident generalities like “communicate clearly and often”, “intervene early”, “set expectations”.

Rather than propose a list of best practices in case management, here are four practices I have run across often enough to recommend them for your consideration.  

1.       Three point contact. If there is one practice that is mentioned more than any other, it is this one.  It is often modified and expanded to mean, “Case managers should review the file and, within three days of receiving that file, establish contact (preferably personal) with the treating healthcare professional, employer and worker.”  In practical terms, the treating healthcare professional contact may have to be indirect.  Don’t let that stop you from making personal contact with the worker and employer. (Many jurisdictions put this practice in their required procedures for agents and adjudicative staff.  See South Australia WorkCover Claims Operational Guidelines Chapter 6 page 4 as an example applied to agents and New Your State Insurance Fund Global Case Management for one that applies at an insurer team level).

2.       Facilitate personal contact with decision-making employer and worker.  The vast majority of injured workers return to their “at injury” employer.  The timeliness of that return and its long-term success often rest with the case manager.  Often, the manager or supervisor will be the key person mediating the timing of a return to work. Keeping the worker connected to the employer and the employer actively engaged in thinking about RTW for this person may well lead to improved outcomes.  ( I really like the CCOHS document Best Practices for Return-to-Work/Stay-at-Work Interventions for Workers with Mental Health Conditions FINAL REPORT [May 2010] because it is authoritative and well referenced. I think the personal contact practices identified are widely generalizable to most Case Management situations).

3.       Think mid-week this week, not Monday next week.  Case managers can influence the timing of a graduated RTW, light-duty RTW or work trial.  For most Monday to Friday jobs, there is a tendency to set a Monday start date a week or two in hence.  Research tells us that more injuries occur on a Monday than any other day of the week.  This “Monday Effect” phenomenon alone is reason enough to consider a different approach.  Why not consider the Wednesday, Thursday or Friday before as the RTW date?  Not only will this allow a returning worker more time to adjust to a regular work week, it may shorten duration and reduce costs overall.  

4.       Identify barriers…and how to overcome them.  I recently reviewed a case management system where the insurer and staff had developed a new “tab” that required the case manager to identify barriers to RTW.  Case managers themselves had helped design this part of the systems with drop-down menus of the most common barriers raised or identified in case management.  If the barrier source was identified as “employer” and the reason “wants worker to be 100%,” the course of action might be “case conference with employer” generating an actionable item in the system. If the source was “worker” and the reason “fear of re-injury” then the action might be “arrange work conditioning” or “set up light duties with employer.” The point here is not that you need a new case management system but that identifying barriers and ways to overcome them can be an effective technique in case management. 

There are other practices I think are worth considering (subject to jurisdictional law or corporate policy).  One case manager involved in making entitlement decisions asks if the client wants a text message when the decision is made (yes, a full letter will follow or is immediately available on the electronic file but let’s face it, most of us now depend on our smart phones).  Another routinely uses conference calls to have the worker, employer and treating healthcare professional (often a physio or occupational therapist) together to discuss progress and set up RTW trials.

If you have a practice that you think should be considered by Case Managers, share it through a comment. 

Is bullying or harassment just a school or workplace health and safety concern?

Edit ​Recent media coverage on bullying has focused on tragic cases like that of Amanda Todd, the British Columbia teen who ended her life after years of bullying. But the analysis and discussions over what we can do to prevent bullying has not been extended beyond the school system to a broader community: the workplace. A simple Google search shows that news stories on bullying in the workplace amount to less than a tenth of the volume of stories on bullying in schools. The relative silence on the issue of workplace bullying is somewhat surprising. Does the incidence of bullying dramatically decline after graduation? Maybe. However, there may be other explanations worth exploring.   One possibility relates to a societal tolerance or resignation that there is nothing that can be done about about workplace bullying. In 2008, WorkSafeBC did a survey on workplace bullying. While more than 54 percent of the 800 British Columbians surveyed agreed with the statement: “workplace bullying is a serious problem in British Columbia today," a much higher percentage (62 percent overall, 66 percent of women) said: "workplace bullying is an inevitable part of life in the workplace."   Another explanation may be the words we use to discuss this issue. A colleague and I looked at claims for workplace stress not involving a single traumatic event. What we found was a tendency for women to use the term “bullying” to describe behaviours male victims might describe as “harassment.” The legal term may be “vexatious conduct”; HR records might speak of “personality conflicts”; a colloquial definition might include “hazing” for acts that are more physical or “razzing” for more verbal ones. Perhaps the diversity of language is masking a problem that is much larger than media reports suggest.   Whatever words we use, the issue of bullying and harassment is not confined to the K-12 education system. Workers’ compensation systems are increasingly recognizing workplace injuries arising from bullying/harassment. This is not to say bullying is on the increase; it's an affirmation that workplace bullying and harassment can have serious consequences for the victim. It's also a wakeup call for all workplace participants to pay attention and stop thinking about bullying as something that stops when you reach 18 years of age.   The issue of workplace bullying and associated disability due to stress or mental injury comes up more often than any issue of traumatic injury or specific occupational disease from conference audiences I present to and from participants in courses I facilitate. Those who specialize in DM and RTW for employers almost universally report situations within their experience that meet the definition of bullying. They also report the challenges they face in accommodation and RTW in these cases. Having a policy that says, “thou shalt not bully” is not enough. A growing number of companies now carry out risk assessments, craft and enforce corporate policies against harassment, and provide training on the issue. Whether or not such actions are mandated by law or policy, they're the right things to do.   Acts of bullying or harassment extend beyond school and work environments. Playgrounds, sports venues, and even streetscapes are locations where the victimization of individuals occurs. Eliminating bullying and harassment in school settings and the workplace may not solve the greater societal issue but it is a step toward changing the perception that bullying is inevitable.

What is the “right” premium rate for workers’ compensation?

Most people would agree that workers’ compensation is an important form of social insurance. How should it be administered, what benefits should be offered, and how permanent partial and total disability ought to be calculated are all matters of debate. Every jurisdiction makes up its own rules on workers’ compensation through public policy, legislation, and practice. The unique combination of these public policy positions and how they are administered set the stage but work-related injuries are what drive the financial cost of workers’ compensation in each jurisdiction. And costs are mainly met by premiums paid (almost) exclusively by employers.

Premium levels and the cost of workers’ compensation have been in the news a lot lately. The Oregon Workers’ Compensation Premium Rate Ranking study and the National Academy of Social Insurance’s publication on Workers’ Compensation Benefits, Coverage and Costs are perhaps the highest profile studies to hit the headlines, but there are many jurisdictions where workers’ compensation premium levels have been the focus of attention. Morley Gunderson’s report, The Impact of High Worker's Compensation Premiums on Newfoundland & Labrador, WorkComp Strategies’ Consultation Services on Workers’ Compensation Laws, Processes, and Costs in Tennessee, and the recently announced external review by Paul Petrie on Workers’ Compensation Process for Setting Employer Rate in Manitoba are but a few of the many examples recently garnering attention.

At the basis of all this attention is the fundamental question: “What is the right premium for workers’ compensation?”

As with all insurance, premiums must ultimately cover benefits and administration costs. There are other costs in workers’ compensation that may be included in premiums (reserve funding, second injury funds, uninsured employer protection, insurance guarantee funds, prevention, oversight, appeal bodies, and more) although many jurisdictions pay for these through additional assessments. Premiums may also be adjusted up or down to cover changes in funded status, investment returns, or changes in actuarial valuations. These costs generally pale to the main financial costs of medical, indemnity, rehabilitation, and permanent disability benefits.

In the best possible world, workers and workplaces are safe, healthy, and free from work-related injury, illness, disease, and death. In that world, a workers’ compensation premium at or near zero makes perfect sense. However, in the real world of today, workers and their families pay a huge personal cost for work-related injuries and the total cost of compensation is significant. Without slashing benefits or externalizing costs to others, what is the right workers’ compensation premium?

Perhaps the best way to approach this question is to first look at the extremes, while assuming the true benefit cost is somewhere in between. Suppose workers’ compensation premiums paid by an employer to cover one employee were greater than the payroll cost of that employee for a year —don’t laugh, this sort of premium has existed for certain classifications in certain states in the recent past. What sort of behaviour would we expect this high rate to incentivize?

On the positive side, such high rates may spur technological innovation, training, investment in new plant, improved supervision — all aimed at reducing the costs associated with workplace injuries in this sector. On the negative side; however, the extremely high premiums set up conditions where underreporting of payroll, hours of exposure, and injuries may have extremely high payoffs. Think about it: if I have to pay $100 in premium for every $100 of payroll, then for every $100 of payroll I pay under the table I cut my effective labour cost at least in half.

On the other hand, what if premiums were effectively $0.00 per $100 of payroll? The employer pays nothing, zilch, nada. Some classification are close to that. In B.C., for example, the Interior Design classification’s base premium is $0.10 per $100. On the positive side, there would be no incentive to hide or suppress the report of a workplace injury. We would have, perhaps, a more accurate grasp of what is happening in the workplace. On the flip side, extremely low premiums could lead to under-investment in health and safety. In the extreme case, a very uncaring (and unethical employer) would ask, “why buy safety equipment, invest in safety training, or purchase safer technology if the cost to the employer of workplace injuries is essentially zero? Assuming replacement labour is readily available, why not spend money elsewhere on expansion or other initiatives to raise profit or shareholder value?”

I’ve presented the moral hazards at the extremes to make a point. The “right” workers’ compensation premium is not necessarily the lowest possible one. High variation in competing jurisdictions may be an issue for concern but a relatively low dispersion rate among nearby competitors may simply indicate that the employers and workers in these jurisdictions are facing similar risks and cost structures. The right base premium, in my view, should always be close to the total benefit cost. It's at that point where the investment in safety, health and return-to-work/stay-at-work initiatives will have their greatest impact.

That’s my perspective. I would be interested in hearing yours.